Bitcoin Futures on CBOE vs. CME: What's the Difference?

Which exchange should futures investors choose for betting on bitcoin?

Unregulated bitcoin futures exchanges have already been in existence for some time. But they have failed to attract institutional investors, who have mostly stayed away from the cryptocurrency. However, the entry of CME and CBOE is expected to change the situation. (See also: CME To Launch Bitcoin Futures).

It will enable institutional investors, who have mostly stayed away from the cryptocurrency, to take positions betting for or hedging against its price movements. While large trading firms and bitcoin miners are expected to be the major players in bitcoin futures, retail investors can also profit off its volatility by using futures. Both contracts are cash-settled (meaning they are settled in U.S. dollars, as opposed to bitcoins). (See also: Four Problems With Bitcoin Futures).

Here are the main differences between bitcoin futures contracts at both exchanges:

Underlying Spot Price

The CME contracts are based on the Bitcoin Reference Rate (BRR) index, which aggregates bitcoin trading activity across four bitcoin exchanges - itBit, Kraken, BitStamp, and GDAX - between 3pm and 4pm GMT. On the other hand, CBOE will price contracts with a single auction at 4 pm on the final settlement date. It will use bitcoin prices from the Gemini exchange, owned by the Winklevoss twins, to calculate contract value. Bitcoin prices, so far, have varied between different exchanges due to differences in trading volume and liquidity. (See also: Why Is The Price Of Bitcoin Different Around The World?)

Contract Units

Each CME contract consists of 5 bitcoins while the CBOE contract has one bitcoin. This means that both the CME and CBOE contracts will be worth the price of bitcoin on the BRR index or Gemini at the time of trading.

Price Limits And Margin Rates

CME’s circuit breakers for bitcoin futures will be triggered at 7%, 13% and 20% price movement in either direction from the daily settlement price of the prior business day. Trading will be halted, if the price for bitcoin futures moves more than 20%. In CBOE’s case, the trading halts are triggered at 10% (for two minutes) and 20% (for five minutes) of daily price limits. CBOE requires a 40% margin rate for bitcoin futures trades while CME has implemented a 35 percent margin rate.

Tick Sizes

The tick value (minimum price movement) at CME is $5 per bitcoin. This means that the price movement for a single contract will move in increments of $5 and amounts to a total of $25 per contract. At CBOE, the minimum tick for a directional non-spread trade (meaning the absence of a concurrent long and short position) is 10 points or $10. A spread tick has a tick size of $0.01.